Is now a good time to make a RS gold investment or a silver investment? The gold price and the silver price have both risen steadily, and rather dramatically, from 2005 to the present.
Has this rise run its course or is it merely a beginning? These important questions deserve honest consideration. The following information shows why great upward pressure remains on gold and silver prices, making possible even more dramatic increases.
Some History of Gold and Silver Prices
From 1792 to 1933, the gold price was $20.67 per ounce in the United States – all money could be exchanged for gold. In 1933, the US went off this gold standard, devalued the dollar to $35 per ounce of Gold, and forbade any US citizen from holding or owning any RS gold. Foreign citizens and banks could, however, convert their US notes into gold. After World War II, the gold-backed US dollar became the world’s key currency for several reasons:
The European countries involved in WWII were heavily in debt to the US. The US economy was very strong and the value of the dollar appreciated. Of all the major world currencies, only the US dollar was backed by gold.
The US agreed to link the dollar to the gold price of $35 per ounce and exchange gold bullion for dollars.
In 1971, the dollar became fiat money; the dollar became merely a paper note having neither value in itself nor backing in real assets. This happened when President Nixon ended the ability of foreign banks to convert their US dollars into gold. Nixon’s action eliminated the official $35 per ounce price of gold – the value of gold and the value of the dollar were no longer linked.
The private market, which in 1968 was allowed to set a separate price for gold, then determined the world’s only gold price. At the time of Nixon’s order, the gold price had recently risen to about $40 per ounce and the silver price was about $1.40 per ounce. (The market quoted gold and silver prices in US dollars per ounce.)
Since 1971, the value of the fiat dollar has lay in the US government’s declaration that the dollar is legal money to exchange for goods and services.
Treasury could then pay its RS gold bills and its debts in fiat dollars
Standing behind the national debt has been the increasingly shaky assurance that the US government, or rather the US taxpayer, is good for every dollar that is owed. Still, for almost 40 years, the dollar has remained the world’s currency standard largely because of the past strength and continuing importance of the US economy.
After the dollar had become fiat money, gold and silver prices increased modestly at first. But by the end of 1974, when the right of US citizens to own gold was finally restored, the price of gold had risen above $180 per ounce and the price of silver above $4.00 per ounce.
As precious metals and former currency standards, gold and silver prices almost always rise and fall together. What factors affect their price? Is now the time to make a profitable gold or a silver investment?
Yes, now is a great time for a gold or silver investment. The US and the world are on the brink of changes that could heighten economic uncertainty, and even produce fear. Of course, no one can predict any future price, but such uncertainty increases the demand for gold and silver and drives their prices up.
Spikes in Gold and Silver Prices
Unusual or extreme conditions existed during three times when the price of gold and silver rose abnormally high. These factors often accompany economic uncertainty and higher gold prices.
1973-1975: Troubling the nation and world were the Watergate scandal, President Nixon’s resignation, and Arab members taking control of OPEC and cutting oil production. Inflation was high and spiked to over 12%. The rise in the gold coincided with consumer confidence plummeting to an historic low. Additionally, gold climbed and fell nearly in tandem with both inflation and the unemployment rate, which reached 9%. Interest rates also surged to a post-war high of 12% just months before gold peaked at nearly $200 an ounce.
All of 1980: This was the year of the Iran hostage crisis. Gold and interest rates were both extremely high and extremely volatile. The price of gold skyrocketed to $850 per ounce, dropped to $485, and surged again to $710 before dropping again. Interest rates followed gold by a few months rising to 20%, falling to 11%, and climbing back to 21% by year’s end. Consumer confidence plunged briefly and the inflation rate grew to over 14%; it was higher than 11% for nearly two years.
1982,83: Consumer confidence was very low for a prolonged period, likely caused by the highest unemployment rates since the great depression and a very high interest rates, still over 16% when gold began its rise from $296 per ounce